The US dollar has taken a pause after strong gains, as USD/CAD trades at 1.3340 in the Friday session. On the release front, it’s a quiet end to the week. In the US, today’s highlight is Building Permits. The indicator is expected to remain steady at 1.24 million. There are no Canadian events on the schedule.
There were a host of releases out of the US on Thursday. CPI and Core CPI both came in at 0.2%, also matching the estimates. Other key events looked sharp, as unemployment claims dipped to 254 thousand, while the Philly Fed Manufacturing Index surged to 21.5 points, well above expectations. The news was not as good north of the border, as Canadian Manufacturing Sales posted a sharp decline of 0.8%, its weakest reading in five months. The markets had expected a gain of 0.7%.
The Federal Reserve rate hike of a quarter percent to 0.50% was widely expected and priced in by the markets at close to 100%. Still, the sheer magnitude of the move triggered a sharp rise by the dollar against most major currencies. The Japanese yen slipped as much as 2.8% in the aftermath of the rate hike, as USD/JPY climbed close to the 119 line in the Thursday session. The pair is trading at its highest levels since February, and the symbolic level of 120 could be tested as early as next week.
Federal Reserve Chair Janet Yellen has worked hard at improving transparency with the markets, and the Fed should get full marks for getting out the message of a December rate hike. This marked the first rise since December 2015 and only the second rate hike since 2008. In its rate statement, the Fed sounded positive about the economy, noting that the
labor market has continued to strengthen and that economic activity has been expanding at a moderate pace since mid-year.
As well, the Fed revised upwards its forecast of US economic growth to 1.9% in 2016 and 2.1% in 2017, slightly higher than the Fed’s September estimates.
What’s next for the Fed? In September, Fed officials said they expected two rate hikes in 2017, but the Fed is now projecting three or even four hikes next year. However, projections can change based on economic conditions, and the markets haven’t forgotten that after the hike in December 2015, the Fed said it expected to raise rates four times in 2015, but ended up raising rates only once.
As well, the wild card of Donald Trump could also play a critical role in monetary policy. Trump’s economic platform remains sketchy, apart from declarations that he will increase government spending and cut taxes. If Trump’s economic policies heat up the economy and boost inflation, we could see a number of rate hikes in 2017.
Dot-Plot Blindness has Dollar Bears Bailings
USD/CAD Fundamentals
Friday (December 16)
- 8:30 Canadian Foreign Securities Purchases. Actual 12.35B
- 8:30 US Building Permits. Estimate 1.24M
- 8:30 US Housing Starts. Estimate 1.23M
*All release times are EST
*Key events are in bold
USD/CAD for Friday, December 16, 2016
USD/CAD December 16 at 6:00 EST
Open: 1.3334 High: 1.3354 Low: 1.3313 Close: 1.3354
USD/CAD Technical
| S1 | S2 | S1 | R1 | R2 | R3 |
| 1.3026 | 1.3120 | 1.3253 | 1.3371 | 1.3457 | 1.3589 |
- USD/CAD was flat in the Asian session and has posted small gains in European trade
- 1.3253 has strengthened in support
- 1.3371 is a weak resistance line
Further levels in both directions:
- Below: 1.3253, 1.3120 and 1.3026
- Above: 1.3371, 1.3457 and 1.3589
- Current range: 1.3253 to 1.3371
OANDA’s Open Positions Ratio
USD/CAD ratio is unchanged in the Friday session. Currently, long positions have a majority (57%), indicative of trader bias towards USD/CAD breaking out and moving higher.
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